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# how to figure the profitability and ratios

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I need help as financial statements, math, and ratios are greek to me. I need to pull together about 200 words...not a lot on the topics below from the financial statements provided via the links. Can you please help me understand and show how to figure the profitability and ratios in a way that I can understand? we are thinking of acquiring pepsi and comparing it to its competitor...coke.

compare companies two most fiscal years:
- profitability
- management efficiency ratios
- leverage ratios

http://www.pepsico.com/PEP_Investors/AnnualReports/06/index.cfm

http://www.thecoca-colacompany.com/investors/pdfs/form_10K_2006.pdf

https://brainmass.com/economics/risk-management/how-to-figure-the-profitability-and-ratios-166878

#### Solution Preview

compare companies two most fiscal years:
- profitability
- management efficiency ratios
- leverage ratios

Financial Ratios
Financial statements are useful tools for evaluating both profitability and liquidity. Financial Ratios are used to gain an understanding of a company's financial performance. Therefore, it is important that companies like PepsiCo, Inc. and Coca-Cola maintain accurate detailed financial statements to ensure that the correct financial performance is presented to the public. Unfortunately, inaccurate financial statements, such as a company's income statement and balance sheet, can negatively influence potential investors and creditors and even make the company legally liable.

Leverage ratios

The times interest earned ratio is a measure for determining if a company's earnings are sufficient to cover interest payments. This type of ratio is commonly used by creditors to determine a company's financial advantage. The times interest earned ratio formula applied to PepsiCo, Inc. and the Coca-Cola Company is as follows:
Times Interest Earned Ratio = EBIT / Interest Payments

PepsiCo, Inc. Coca-Cola Company

2005 2006 2005 2006

6,382 / 460 6,989 / 550 6,690 / 675 6,578 / 75
= 13.87 = 12.71 = 9.911 = 87.71

Coca Cola has better solvency in 2006.

Profitability
The net profit margin is a profitability ratio that focuses on a firm's earnings. This ratio helps to highlight a company's ability at controlling costs by determining how efficiently revenues are converted into profit. Basically, the net profit margin ratio is used when "...you want to know the ...

#### Solution Summary

How to figure the profitability and ratios of companies is guided here.

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